Labor should not pass Frydenberg’s tax deformity

Via New Daily:

Tax cuts for the “top end of town” could be waved through Parliament by Labor as it considers putting the Prime Minister under pressure to deliver on his tax cuts and his promised surplus.

Labor on Tuesday accused Scott Morrison of his first broken promise over potential delays to planned $1080 tax cuts, and is now considering how it will respond in the Senate.

It means a tax showdown looms in the Parliament, with the Treasurer signalling that he will combine tax cuts for low and middle income earners of $1080 in planned legislation along with cuts for higher income earners.

That’s designed to force Labor and the cross bench to support the Liberals’ $77 billion tax cuts for the rich – or risk denying tax relief now for workers earning under $126,000.

“It is important it is dealt with in a package. We are talking not just about immediate tax relief but long-term structural reform,” Mr Frydenberg said.

“It has been our message to the Australian people at this election.”

Let’s ignore the politics and focus on the economics. What is L-plate Treasurer Frydenberg’s notion of “structural reform”? To flatten the income tax scales so that the rich pay similar rates to the poor.

What will this is classic trickle down economics achieve. Will it boost growth? No, as we have seen in the US, tilting income distribution towards the rich culminates in demand deficit. If you have one million dollars to give, and you give it all to one wealthy person, will they spend as much of it as giving $10k each to 100 poorer people? No.

Will it boost investment? No. Because the resulting demand deficit will deliver excess capacity. So the rich person will save even more of the $1m. This is a key driver of “secular stagnation” economics, not to mention social dislocation arising from class warfare.

Trickle down economics is voodoo and Josh Frydenberg’s “structural reform” is actually structural deform, designed to keep party rent-seekers happy not:

  • enhance productivity to lift income;
  • increase efficiency to maximise resource use;
  • shift production to higher-value added output.

These are what “structural reforms” aim to achieve. Not pissing assumed commodity windfalls onto fat cats.

Labor should not pass Frydenberg’s tax deformity.

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